My most recent books are the Leader's Guide to Radical Management (2010), The Leader's Guide to Storytelling (2nd ed, 2011) and The Secret Language of Leadership (2007). I consult with organizations around the world on leadership, innovation, management and business narrative. At the World Bank, I held many management positions, including director of knowledge management (1996-2000). I am currently a director of the Scrum Alliance, an Amazon Affiliate and a fellow of the Lean Software Society. You can follow me on Twitter at @stevedenning. My website is at www.stevedenning.com.

The Creative Economy In France: Givenchy And Vinci Show The Way

“The customer is our boss,” says Michèle Armiel, Executive Vice President of Givenchy. She was speaking on July 11 at the Paris launch of the Sixth Global Peter Drucker Forum, which will take place in Vienna Austria on November 13-14, 2014, and whose theme is “the Great Transformation” of management. “At Givenchy, we have no choice but to be creative,” she said. “Our challenge is to keep a balance between creativity and profitability.”

“Decentralization and empowerment,” said Xavier Huillard, Chairman and Chief Executive officer of Vinci, “constitute the royal road to liberating energy and innovation.” Vinci is a French company with 191,000 employees and turnover of €40 billion in construction and the provision of public services.

Although Vinci operates in a business sector that is very different from Givenchy, its management practices have many similarities. Huillard said that the company is composed of 2,400 separate autonomous business units to ensure speed of execution and to mobilize talent. He sees the role of a CEO as one of mobilizing the energies of its employees within the culture and the values of the firm. “Organizations are first of all adventures for the men and women who do the work.” he said. “To say that our enterprises belong solely to our shareholders is totally idiotic.”

The great restaurants of France, to which the Michelin guide awards two or three stars, were also cited as outstanding examples of innovation in management. In those restaurants, everyone is devoted to delighting the customer. They should be examined as “laboratories of advanced management.”

These examples of managemeent liberating energy and innovation were in sharp contrast to many French organizations in both the private sector and the public sector which, as Yves Doz Professor Emeritus at INSEAD pointed out, are still governed by practices of hierarchical bureaucracy: financial goals, conformism, control and fear. In these organizations, the culture is inbred and the customer is almost totally absent. The bloated slow-moving public sector in France received particularly severe criticism from many speakers.

Three driving forces of change

Although the overall picture that emerged is one of immense complexity, three driving forces are central.

First, as The Economist has noted, we are living in an era of “a Cambrian explosion of innovation.” As a result of new technology, particularly the Internet, it has never been easier to develop products and services that are better, cheaper, faster, lighter, more convenient and more personalized. All around the world, vertical value chains are being shredded and new horizontal value chains are being created.

Second, there has been epic shift in power in the marketplace from producer to consumer, from seller to buyer. In the 20th Century, the organization was in charge and could succeed by pushing products and services at customers. Now, as a result of globalization, which generated choices, and the Internet, which has given customers reliable information about those choices, customers are collectively in charge of the marketplace. This shift in power is causing a massive upheaval throughout the global economy. Yet the implications of this epic shift are still only dimly perceived by many managers.

The third factor, which follows from the first two, is the tremendous stress that executives everywhere are experiencing. Old ways of managing are no longer appropriate to the very different world that is emerging—sharpened competition, accelerating innovation and enhanced expectations from customers who have the power to enforce those expectations. Analogous pressures are being felt in the public sector.

While many organizations in both the public and the private sector are clinging to the status quo in the face of accelerating change, firms like Givenchy and Vinci are embracing innovation and the future.

Liberating innovation at Givenchy

Michèle Armiel described the management practices at Givenchy, the second largest apparel division of LVMH [Euronext: MC] after Dior.

The Givenchy brand has existed for sixty years. It’s exceptional in the sense that it is currently experiencing double-digit growth. Furthermore, less than 10 percent of its business is in France.

Its founder, the aristocrat Hubert de Givenchy, traveled the world. He conquered America, notably the most beautiful and influential women, including Jackie Kennedy, Elizabeth Taylor and Audrey Hepburn. He also conquered Japan, a move that was also advanced thinking for its time. He put forward a conception of a woman who is different, a woman who is intellectual, a woman who is at the same time feminine and masculine. This was a revolution.

When you think about the fashion and design houses that existed at that time and that no longer exist, Hubert de Givenchy’s approach gives us clues as to why the firm has survived and continues to flourish.

The challenge for Givenchy today is to find the right balance between creativity, which implies ambiguity, and profitability, which is unambiguous. Givenchy has no choice but to be creative, not only to survive but also to thrive and to deliver strong corporate performance.

The challenge is how to reconcile these different requirements in a creative way. Givenchy has had to rethink several aspects of management, particularly how to put in place management models that are capable of supporting creativity while also channeling it. That’s because its designers are artists. But it also has factories that have to be run. And shops that have to be filled. And clients who have to be satisfied. The challenge is how to get all these different kinds of people working together. The people involved are very different—different backgrounds, different interests and different personal goals.

One of the ideas that has guided Givenchy comes from Albert Einstein, who said: the most important thing is imagination— innovation—rather than knowledge. This insight has helped the management at Givenchy understand the process of global transformation. Imagining and creating the future are more important than knowledge of the past.

The luxury and fashion industry has undergone a process of modernization of its structures. So as in other firms, Givenchy decided to abolish all the organizational silos and the barriers that separated different departments. This has enabled Givenchy to move with more power, to operate in a horizontal or “transversal” fashion and to have teams that are able to work closely together. The teams include people in design, in factories, in operations, and in sales and marketing. This way of working enables horizontal communications about products, while at same time achieving creativity, above all creativity that is pragmatic. A pragmatic creativity is essential within a modern business model which has to deliver profitability.

Second, a participative approach. Once Givenchy had put in place these structures, it had to adopt a way of operating that is participative rather than top-down, so that the ensemble of teams is always operating in a horizontal or “transversal” manner. This enables the different skills and perspectives to be applied in a complementary fashion.

Third, focus. A firm can’t do everything. It has to choose where it wants to do battle. So it’s a matter of choosing the domains that offer the greatest scope for transformation in terms of impact on the big picture. Always within this pragmatism, we have to be oriented towards getting results and understand why we are doing things. We need to be objective about the situation as it evolves, and take decisions, for instance, if we no longer understand why we are doing a particular project. In this spirit of pragmatism, it’s a matter of having a business model that is profitable, and focused on the customer. It’s about making beautiful products that please the customer and that effectively sell themselves.

Fourth, leadership. It’s a matter of putting in place an ensemble of management teams, with a culture of leadership that is modern and global.

Shesuggested three fundamental elements of a modern management mindset.

First, it’s about how we behave as leaders. It is important that we as managers are curious and willing to act as “challengers”, raising questions with genuine humility about everything that is going on, in every sector of activity and every region.

Second, listening. We need to listen, to watch, to observe, to look out for new things, the new generation, new tendencies, the novelties that interest customers.

Third, timing. What I often say to a team is that Rome wasn’t built in a day, but we need a strategy that will succeed in the short term, in the medium term and in the long term. It’s a matter of putting in place all the different actions and measures of strategy, in three dimensions, at the same time, in parallel.

When it comes to liberating energy and innovation through management, she made four points:

First, diversity. It’s key to have teams that have different kinds of people. Diversity brings a richness of perspective to the organization that can help it make sense of the chaos in today’s marketplace. In our firm, we have more than twenty nationalities, from every continent in the world. We have every kind of religion, every sexual preference, every gender–masculine, feminine—that you can imagine. This diversity is precious and has to be nurtured. Generation X, the designers with long hair, the engineers and so on. Everything is mixed in together.

Second, decentralization. This enables us, particularly in the subsidiaries, to operate with an extreme agility and flexibility, with a capacity to act and take decisions very rapidly.

Third, a culture of risk-taking. It’s a matter of encouraging risk taking, using emotional intelligence at every level of the organization.

Fourth, a modern type of leadership, that is both global and local, that maintains a balance between self-knowledge and savoir-faire, with soft-skills and a humanist capacity to pose questions and a willingness to take the time to reflect on what’s going on around us, and to grasp different perspectives and approaches. We overcome pessimism through an ability to communicate enthusiasm and passion to the teams, with the conviction that “the future is now.” We agree with Peter Drucker’s point that management makes everything possible, but you have to want it and make it happen.

Liberating innovation at Vinci

Vinci is a firm operating in a very different sector from Givenchy–the construction industry and the management of public services such as parks, parking stations, airports and auto routes.

Nevertheless the management practices at Vinci as explained by Xavier Huillard have many features in common with those of Givenchy:

Early in my career, I was a follower of Peter Drucker and became convinced of the power of decentralization and empowerment. In the Vinci group that I now manage, which has 191,000 employees, there are only three hundred people at headquarters. There are not many firms of this size with a headquarters as modest as this. And to keep it that size, you have to fight for it every day. That’s because it’s the natural temptation of every headquarters to add staff in order to cope with complexity. The best way to avoid this is to insist from the outset on a modest-sized headquarters.

Of course, there are always good reasons to add more people to carry out different kinds of analyses or to assure the quality of products. So there are also good reasons to add more intellectuals at headquarters who can digest the analyses that people on the ground are putting together. The reality is that you have to fight against this tendency on a permanent basis. You need to put these analysts as close as possible to the source of the complexity, that is to say, on the ground.

Decentralization

The other key element in our organization is that we have split the group into 2,400 business units. Some of them are very small. Some are large. Their size is determined by the market that they have to address and the project that they are involved in. They are organized with total autonomy and provided with everything they need.

We have to deal with the bureaucratic temptation, in the name of rationalization and accountability, to put in place an elaborate control system of accountants and financial analysts and engineers with engineering studies. You just have to say: no! We must let these business units be as autonomous as possible, so as to liberate the energy and the entrepreneurial spirit of those who work in these business units.

Assuring coherence: the project as a joint endeavor

At the same time, there is of course a risk, when you have 2,400 business units and so also 2,400 managers who have the interest and the capacity to launch new projects and enter into new territories, that there will be a certain lack of coherence. So there has to be an element that is sacred. And what is that sacred element? It’s the project that reflects the sense of a joint endeavor. It’s the project that incorporates our values and makes them explicit. It’s the project that ensures coherence. That’s where my role comes in.

Work should be an adventure

If you want to have any chance of getting back to fundamentals, you have to deliver on the conviction that organizations are first of all adventures—adventures for the men and women who do the work. A job is after all just a pretext for the human adventure. One can see this clearly when team members really get involved in what they are doing.

Thus it’s true that work can sometimes be tiring and make people cynical. But it’s also true that good work can unlock energy and inspire people. I am convinced that when people have the conviction to launch and complete a project, and when each of the team members is truly in charge of something, no matter what is the size of the organization, or whatever his or her position in the organization, they become truly engaged in doing meaningful work, not just doing a job.

Growing the people who do the work

When the organization succeeds in doing that, then obviously it is growing its people as human beings. They begin to see their work as a calling and start to become a kind of elite with a higher set of values. So decentralization and empowerment, the fact of putting in place teams that are totally autonomous, all that is the royal road to liberating energy and commitment.

In effect, in order to assure coherence, the activity has to be tailored and encapsulated in a project that is consistent with the culture, the values, and the strategy of the organization. And making sure that this happens is the true role of the new corporate leader. Sometimes one succeeds a little, sometimes a lot. Sometimes for various reasons, the projects are less successful. In that case, the organization can reduce their financial dimensions.

Shareholder value theory is idiotic

An enterprise is after all the intersection of a large number of different elements. It reflects number of stakeholders that can be summarized in terms like “the social economy.”

It is sometimes said that our enterprises belong to our shareholders. That is totally idiotic. Of course shareholders have a financial interest in the organization and their financial interests have to be treated in a proper manner. But an enterprise also belongs to its neighborhood, to its city, to its political leaders, to relevant non-governmental enterprises.

That is to say, all these stakeholders have legitimate interests in the enterprise. So the project must integrate all these stakeholders and combine all these factors, which are sometimes contradictory. The project must incorporate all these elements in a way that creates value and gives all the men and women who work in the organization a profound sense of participating in an adventure, so that they grow, and see themselves as being involved in something that is genuinely worthwhile.

Two different economies

The picture that emerged from the discussion is one of stark contrast between on the one hand, agile, creative, innovative firms like Givenchy and Vinci, and on the other, inward-looking slow-moving hierarchical bureaucracies that dispirit their employees and fail to adapt and innovate.

In effect, there are two very different economies co-existing, but moving on very different trajectories. One is the Traditional Economy which is in decline while the other—the Creative Economy—is flourishing and growing rapidly.

As elsewhere in the world, the Traditional Economy in France is still the larger of the two economies. Organizations in the Traditional Economy are managed with the practices that organizations have inherited from the 20th Century: financial goals, control, conformism, fear, inbred cultures and disinterest in the people for whom the work is being done.

The practices of these hierarchical bureaucracies were brilliantly depicted at the start of the discussion by Yves Doz. The top of the organization comprises “controllers” who set the goals of the firm. The “entrepreneurs” within the organization who deliver products and services are at the bottom of the hierarchy. The middle managers are “integrators”, who operate through adaptation of strategy, strengthened engagement and fluid movement of resources.

Traditional Economy vs. Creative Economy

Organizations in the Creative Economy are different from those in the Traditional Economy in four main ways.

First, in the Creative Economy, the top managers are now also entrepreneurs, tightly focused, as at Givenchy and Vinci, on continuously adding new value for customers and stakeholders.

Second, the customer, who is almost totally absent from the matrix of internal management processes of hierarchical bureaucracy, is now central. In the Creative Economy, the customer is recognized as the boss, and everyone in these organizations is focused, not on internal processes and controls, but on an external perspective, particularly adding value to, and delighting, the customer, as well as other stakeholders.

Third, while hierarchical bureaucracies are focused on tighter internal controls and greater efficiency in the face of increasing complexity, firms in the Creative Economy are going in the opposite direction and driving down “the royal road of decentralization and empowerment” with a sharp focus on adding more value to those for whom the work is being done.

And fourth, as organizations in the Creative Economy now have entrepreneurs at both the top and the bottom, the function of middle managers as “integrators” has become redundant. Organizations in the Creative Economy are thus discovering, as Steve Jobs found when he returned to Apple [AAPL] in 1997, that middle managers who do nothing more than shuffle papers up and down the hierarchy are not adding value to customers or the organization.

The likely evolution of management

Views differed on the likely evolution of these two economies. One view was that organizations in the Traditional Economy might be able to become more innovative by improving and speeding up their internal processes and moving resources more fluidly to where they were needed.

Another view was that more fundamental change was necessary. On this view, firms in the Traditional Economy are essentially dinosaurs that have outlived their useful lives. The world has changed. They are doomed unless they adapt to the new world and adopt the mainstream management practices of the Creative Economy. We do not know whether the transition will be slow and ugly and bloody, or quick and elegant and intelligent. We do know that the change will happen, because powerful economic forces are driving it. The only question is when it will happen, not whether.

The Great Transformation

“We have arrived at a turning point,” says Richard Straub, president of the Peter Drucker Society Europe. “Either the world will embark on a route towards long-term growth and prosperity, or we will manage our way to economic decline.” He elaborated further on these issues in his articles in the HBR blog here and in EFMD here.

Many of the world’s leaders in leadership, management and strategy will converge on Vienna Austria on November 13-14, 2014 to discuss these issues under the heading, The Great Transformation—Managing Our Way to Prosperity.”

“The very coherence of our societies is at stake. Incremental changes won’t suffice–ideas about what should be done are abundant. The main challenge remains howto achieve the better outcomes.”

The discussion at the Paris launch of the Drucker Forum 2014 offered obvious pointers to the way forward.

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